A firm uses two inputs, unskilled labour L and capital K to produce its product. The wage rate for one unit of labour is $5 while units of capital cost $20.
A. Graphically depict the cost line for a C=$1000 expenditure by the firm on inputs. Label the intercepts. Draw a well-behaved arbitrary isoquant for an output level, Q0 to depict the optimal input levels L and K for Q0 and C0 = $1000, and explain the graph.
B. Suppose the government institutes a minimum wage for unskilled labour of $6 per unit. In the short run, with capital fixed at K, show graphically how much it would cost the firm to hold its output constant at Q0 and explain your graph.
C. Show the optimal input mix the firm will use in the long run to produce Q
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Sep 21, 2019EXPERT
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